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Great changes in managing and regulating the economy were often caused by upheavals. It was in 1694 that the British invented central banking in order to finance military expeditions in Europe. The British also invented the modern income tax to fund the Napoleonic wars. The Second World War led to the Great Depression. It produced the framework of economic development – the International Monetary Fund for crisis lending, the World Bank for development aid and the World Trade Organisation to negotiate and arbitrate the rules of trade.

On the other hand, the IFIs have been working more for globalisation than as a coalition for general economic development as it was their objective to offset the war effects. The role of these IFIs thus has come increasingly under scrutiny. The Argentine economic crisis, as an example, made popular the view that the IFIs have thrusted globalisation blindly rather than promoting balanced economic development of the world. The IFIs' 'prudence' and 'expertise', therefore, has yet to focus on alleviating the desperation, helplessness and poverty of the people at large. Out of the world population of eight billion, there are two billion people living on barely a dollar or two a day.

The World Bank once advised that Pakistan "phase out existing industries which are internationally uncompetitive – sugar, refineries, chemicals - automotives, fertilizer and steel which are imposing high cost on the economy". Under this flawed logic even Pakistan's main industry, textiles, is not internationally competitive, as it needs massive doses of subsidies for export – through devaluation of currency, cheaper export finance, R&D support and duty drawbacks. Without all the above industries, one wonders where economic development - the IFIs area of influence – investment, production and export, ensuring increasing employment thus elevating poverty, would lie!

The International Monetary Fund similarly has been promoting high devaluation and low tariffs. This, ironically has led to more inflation and increased interest rates. Started by an interim government in the early 90s, the protection provided to the local industry in Pakistan had gradually reduced to 35 per cent in '01 from 65 per cent. This has been further reduced to 15 per cent as per agreement with the IMF. Be that as it may, nowhere in the world has industry developed without adequate protection. This practice is still continuing in the developed world in one form or another and in some developing countries that defied the IFIs' rule of the game.

Following the Seattle debacle the WTO chose far-flung Doha and subsequently similar distant places to hold its meetings in order to avoid demonstrations against free trade. The question, however, is what and where exactly is the free trade. The USA, Europe, India or elsewhere! If there was unequivocal free trade there would be no EU, NAFTA or any such closed regional markets. The fact is that this is an age of regionalism and protectionism, if not nationalism. The guarding of national interest has been most avidly depicted by the refusal of the US and other countries to lower tariffs on (Pakistani) exports. The IFIs continually prescribe one prescription for all ailing economies, while serving none satisfactorily. Even in the developed world there have been demands - from George Shultz, William Simon and Walter Wristen – to 'abolish the IMF'.

The WTO is also accused of representing the richest corporations and individuals – 0.01 per cent of the world population – enabling about 1000 large corporations, contributing 4th/5th of the world production. The 90s saw an increase in wealth by 70 per cent to 85 per cent in the richest countries as against a two per cent decline in the 20 poorest countries of the world. Policies of the IFIs skew in favour of the developed world and actually discourage local investment.

The shortcomings of the Bretton Woods set-up in dealing with the problems of the modern economy have become now all too apparent. But despite a torrent of rhetoric about a new Bretton Woods, the world is left with much the same system – as it was.

The world's largest emerging economies are now beginning to assert their influence. Discontent from developing countries caused the 2003 ministerial meeting in Cancun to collapse. India and Brazil were given a role in the inner core of the negotiations which continued to refuse unacceptable deals.

The financial and economic shocks since the Depression, and grand talks of a new Bretton Woods did not do much for the system. The regulators' forum now includes more emerging markets but the test will be the rigour of rules that may emerge.

Although the Group of Seven rich countries has largely been replaced by the Group of 20 which includes the systemically significant emerging markets, but it has not distinguished itself. At the G20 meeting in Washington in November 2008 the global governance rhetoric rose to fever pitch. But the G20's credibility was immediately undermined by a no-protectionism pledge that was broken within 36 hours and yet another promise to finish the Doha round that was also broken.

All this shows that political problems cannot be solved with technocratic solutions. No amount of shuffling the pack to include the emerging markets will make any difference unless they, and the rich countries, are aware what tough decisions have to be made, and are willing to face their domestic constituencies.

The developing countries will have to be guided by their national interests in following any policy emanating from external factors. Former World Bank president Wolfensohn supports this view. In one of his statements he said that "…searing images of desperation, hopelessness and decline of people who once had hope but will have it no more…We need local ownership and local participation. Gone are the days when development could be done behind closed doors in Washington or western capitals or any capital for that matter…"

It is thus a coalition for development and, as such, globalisation through localisation – globalisation that is in the global interest.

The writer is the founder/chairman of the Atlas group of companies. Email: yhs@atlas.com.pk